Ashford Hospitality v. City and County of San Francisco

Facts: The majority ownership interested in a limited partnership which owns higher valued real estate is acquired by another entity, resulting in a change of ownership which triggers a local transfer tax ordinance. The local agency processes a tax audit as called for under the transfer tax ordinance. The transfer tax ordinance sorts taxpayers into different classifications with progressive tax rates based on the fair market value (FMV) of the property transferred as reported by the owner. The higher the FMV, the more time and costs the city incurs to audit the self-reported FMV. On completion of the audit, the local agency imposes the transfer tax on the owner. The owner pays the tax and files an administrative claim demanding a refund of the entire transfer tax amount.

Claim: The owner claims the transfer tax is unenforceable as it violates California’s equal protection laws since it sorts taxpayers into different classifications taxed at different rates based on the FMV of the property transferred.

Counterclaim: The city claims the transfer tax ordinance is enforceable and does not violate equal protection laws since the transfer of a higher valued property is taxed differently from the sale of a lesser valued property based on factors of administrative costs incurred to audit the transfer and evaluate the property for setting the tax.

Holding: A California appeals court holds the local agency may enforce the transfer tax ordinance and collect a larger tax on higher valued property since the ordinance rationally distinguishes between more valuable and less valuable properties to set the rate for the amount of transfer tax based on administrative costs incurred to audit the transfer for taxation. [Ashford Hospitality v. City and County of San Francisco (March 3, 2021) _CA6th_]

Read the case text here.